U.S. Treasury bond yields have declined moderately, while market participants are preparing for the publication of new U.S. data that will help clarify the state of the economy.
The yield on 5-year Treasury bonds fell by 3.0 basis points, reaching 3.769%, while the yield on 30-year bonds was 4.157% (-2.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, fell by 2.6 basis points to 4.075%, while the yield on 10-year bonds fell to 3.896% (-3.0 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 18 basis points.
Yesterday's US retail sales data pointed to the resilience of consumer spending, which eased fears of a recession or economic slowdown. In addition, another drop in initial jobless claims has reduced concerns about the state of the labor market. A rate cut in September was last firmly priced in by markets, boosted by inflation data released this week. According to the CME FedWatch Tool, markets see a 27.5% probability of a 0.5% rate cut in September (down from 36% yesterday), and a 72.5% probability of 0.25% rate cut (up from 64.0% yesterday).
Today, investors will focus on housing market data for July (building permits and housing starts), as well as the Reuters/Michigan consumer sentiment index for August. Comments by Fed Chair Jerome Powell at the central bank's Jackson Hole Economic Policy Symposium on Aug. 22-24 will also be important for market participants.